Patient Crude Bulls Might Be Rewarded

Crude oil has failed to make progress in either direction since the bottom fell out in mid-October. But one thing we have learned about the energy markets is that quiet trading is often the calm before the storm.

The best trade might be to patiently wait (hope) for lower prices to establish bullish positions.

Those of you that pay attention to the Commodity Futures Trading Commission's Commitments of Traders Report likely noticed that large speculators (the so-called smart money, but that is up for debate) spent last week adding to bullish crude oil positions as Middle East tensions flared. But it seems as though there has been a bit of buyer's remorse. Many are likely interested in staying overall long going into the long holiday weekend, but should we reach Monday without a significant occurrence, disappointed speculators might liquidate.

According to seasonal tendencies, the crude oil market typically finds some sort of a bottom in early December and this gives prices plenty of time to slide into the low $80s or maybe even high $70s before finding a floor. Corroborating our idea of further near-term weakness, data suggest the equity markets experience post-Black Friday depression and this should aid in the selling of all risk assets.

From a charting perspective, oscillators are mixed and provide little justification of taking an aggressive position either way from current prices. On the other hand, simple trendline analysis suggests there is significant resistance in the high $80s. If we are wrong and the rally breaks out of the downtrend channel, the bulls will be targeting $95/$96.